Observational Personal Finance essays, stories, case studies and how to articles with a distinctly Canadian Point of View, from the Chief Kibitzer of Personal Finance. Paying it forward as best I can.
Many days the media seems to be very confused. They use the term Deficit and Debt interchangeably, and they are not the same thing (in terms of government spending).
In terms of Governments, a Deficit, usually describes how much more was spent than collected in taxes. It is usually measured over a yearly budget. If the deficit is zero, that means the government is taking in funds sufficient to pay for all the spending they have done for the year (this may include payments to service existing debts).
Debt, on the other hand for a government is the amount the government owes, in terms of moneys borrowed over a long period of time. Deficit financing (or the accumulation of debt) for Canada started in the late 1960’s.
I was confused when the CBC had the headline, B.C. posts $1.5B operating debt, they have since revised the title, realizing their mistake. Their tweet remains mistaken:
B.C. has eliminated its operating debt for the first time in 40 years. https://t.co/zRHgdaGqSg
A personal deficit (or surplus), would be something you measure monthly. Did you spend more this month than you made? If you have more or a surplus, then you can put more money on your debt (overall debt), or save the surplus.
Your Debt is the sum total of all the money you owe. Your debt will slow your ability to enjoy your life. You cannot save for:
While you can have occasional monthly deficits, the goal is to have a yearly surplus. The other goal is to pay down debt as soon as possible, and that should be the main goal of your surpluses.
Seems straight forward, doesn’t it? Also seems that this isn’t really a topic for the current election.
Budget 2019 is finally out, and it has a whole treasure trove of goodies. It is truly an election year budget with promises of the future (if you reelect the current government).
“Unlike RRSPs, amounts held in RDSPs are not exempt from seizure by creditors in bankruptcy. To level the playing field, Budget 2019 also proposes to exempt RDSPs from seizure in bankruptcy, with the exception of contributions made in the 12 months before the filing.”
I assume the bankruptcy laws may be changed one day, but this seems quite clear. The past 12 months of payments being not exempt makes sense as well.
RDSP Pay Back if DTC Lost
This has always been a big problem, and with the CRA cancelling DTCs left and right this is a good thing.
“To address concerns that this treatment does not appropriately recognize the financial impact that periods of severe, but episodic, disability can have on individuals, Budget 2019 proposes to eliminate the requirement to close an RDSP when a beneficiary no longer qualifies for the DTC. Doing so will allow grants and bonds otherwise required to be repaid to the Government to remain in the RDSP. To ensure fairness for DTC-eligible beneficiaries, some restrictions on access to these amounts will apply. The estimated cost of this measure is $109 million over five years, beginning in 2019–20, and $33 million per year ongoing. “
Previously you had a short period of time where you had to pay back all grants and bonds, now you can leave the money there. I assume if you try to take money out you would have to pay back grants and bonds (and pay tax on any growth). There still is a few fine points to clarify here.
RDSP Not Forgotten
Glad to see the RDSP is not forgotten in the budget. Curious to see what the Loyal Opposition has to say about these areas come election time?
As most Canadians hear every few weeks, the pay system for the federal Civil Service has been updated, and the new system (called Phoenix) has had many problems, which has caused many serious problems for Civil Servants. These issues are being addressed, but there are still many issues with the new system. I am not affected by this system.
Folks have had to declare bankruptcy, have seen their credit rating destroyed, defaulted on mortgages, and many other serious issues. Who is to blame? I won’t touch on that point, but there is plenty of blame to go around.
One of the side effects is that the Government of Canada Workplace Charitable Campaign has suffered. Most Civil Servants are petrified to make any change that would cause their Phoenix profile to change. Evidently profile changes have caused Phoenix Issues (like stoppage of pay, wild changes in pay levels, etc.,).
Charities Paying the Price
This paralysis of profiles has meant that folks have not enrolled in the GCWCC or increased their charitable donations either. Many folks haven’t done this because they are recovering from Phoenix Issues, but still more are just afraid of what the changes might cause.
Let us hope the pay system issues with Phoenix are resolved (I say that both as a taxpayer and a Civil Servant) soon. I know the charities in Ottawa are hoping for resolution soon as well.
If we take a young family, with a Home Line of Credit that holds the debt on their house (as opposed to a regular mortgage). This young family goes to a financial planner, who tells them they needed to cut down on their spending and get to a point where what they spend is less than what they earn (similar to the concept of this government’s surplus).
The family is lucky in that their Home Line of Credit’s minimum payment is the Interest Charge for that Month (and luckily their Line of Credit interest rate is nice and low). The young family does have a lot of expenses, with small children, car payments and a large amount of discretionary spending (and the debt that accrued because of that spending). The family decides the best way to reach the zen of spending less than they earn is by not paying down their largest debt (their house) so that they can pay for all of their other spendings (cars, vacations, nice clothes, cable, etc.,).
This idea actually works well (assuming the bank doesn’t call the line of credit and ask for all of their money), in that the family is not spending more than they make, but there is a problem. Their debt load isn’t actually dropping, and they will eventually have to pay down the debt on their house, which is a huge problem. An even bigger problem will be when interest rates go up, so in the end, this family is living in a financial fool’s paradise.
In Real Life
At the end of it, the Tories “surplus” didn’t really come to fruition, and thanks to a new Government, we are back to deficit financing programs and such, but there are promises of balancing a budget sometime soon. This might well be how our example family ends up as well (i.e. much farther in debt).
Next, congratulations! You have figured out you need to set up direct deposit (the first step to solving any problem is admitting you have a problem). How can you fix this? Click on any of those links above and you will be told how, however, let’s try a different way of doing things, let’s go to the CRA and check out how your Tax Refund might be done.
Go to yourCRA MyAccount page (link on that page). What the hell is a MyAccount? Don’t worry, you don’t need to create one, you can simply log in with your On-Line Banking credentials (if you don’t have on-line banking I would strongly suggest going to a Services Canada Office to set things up).
Log into CRA My Account with your on-line banking credentials
If you have done things right you will then be at a home page that will have many different and wonderful things you can do with the CRA. Select the Accounts and Payment tab
Voila here is where you set up your direct deposit, or alter it so that it goes to a different account, or stop it from being deposited (although why you would do that I do not know).
It is just that simple people, so why haven’t you set it up yet? Get off your duff and do it!
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